(3) Conclusion

The primary takeaway from this chapter is that all signs in the data point to the same conclusion: wage and tax fraud is endemic in the state’s construction industry. Payroll audits by the Massachusetts Department of Unemployment Assistance revealed that more than one in six construction employers were misclassifying workers between 2017 and 2019. Further, using an indirect method of estimation, the authors estimate that 9.5% to 15.8% of the industry’s workforce in 2019 was engaged in a fraudulent employment relationship. Findings of widespread illegality are consistent with government data on contract labor usage among sole proprietorships, 1099-MISC filings, and workers’ compensation claims made to the Workers’ Compensation Trust Fund. These issues appear especially concentrated in residential construction, a small subset of trades (carpenters, laborers, painters and roofers), and certain types of contractors (e.g., siding, framing, drywall, finish carpentry, painters).

Wage and tax fraud costs the Commonwealth substantial amounts of money. While analyses of payroll data uncovered in DUA audits confirms that the loss of tax dollars and insurance premiums undoubtedly counts into the tens of millions of dollars, an indirect method of analysis—which more broadly accounts for all forms of misclassification and fraud—indicates that the cost likely exceeds $100 million annually and may be far beyond that threshold; this includes substantial revenue shortfalls in the state’s unemployment insurance fund, workers’ compensation insurance premiums, state income tax underreporting, and a host of other costs to taxpayers both nationally (e.g., Social Security) and in the Commonwealth.